Thursday, 15 June 2017

What’s next? – GOLD, OIL 15.06.17

Gold prices turned lower in Asian hours on Thursday following a widely anticipated interest rate hike by the Federal Open Market Committee, which boosted demand for the US dollar.

On the Comex division of the New York Mercantile Exchange, gold for June delivery was trading down by 0.97 percent at $1263.50 a troy ounce as of 06:27 GMT.

As expected, the yellow metal settled in red territory on on Wednesday after the Federal Reserve increased interest rates for the second time this year by 25 basis points to a range between 1.00 and 1.25 percent, while keeping its outlook for as much as three hikes in 2017.

The US regulator expressed confidence about the future of the economy, saying labor market conditions would contribute to raise inflation level to the 2 percent target in the medium term.

“Employment is near its maximum level and the committee expects inflation to move and stabilise around 2% over the next couple of years” Fed Chair Janet Yellen said in a conference.

The hawkish views by Yellen provided sufficient support to the US dollar, which rose against a basket of six major rivals. The dollar index was trading at 96.70 by the time of this writing, adding 0.11 percent to its prior settlement.

In economic news, the consumer price index, one of Fed’s favourite measures of inflation, dropped 0.1 percent in May due to a reduction in energy prices, airline fares and apparel, according to the report of the US Labor Department. Analysts expected a 0.2 percent increase.

In a separate report, the US Commerce Department said core retail sales fell 0.3 percent.

Gold is sensitive to US rate moves, which make the metal more expensive for investors holding foreign currency, lifting the opportunity cost of holding non-yielding assets such as bullion.

OIL

Oil benchmarks were slightly mixed in Asian trading on Thursday, as market participants digested a new rise in US crude stockpiles, adding concerns about the ongoing supply glut.

The US benchmark West Texas Intermediate oil futures traded at $44.59 a barrel, down 0.31 percent from its prior close. Meanwhile, the London-based Brent crude oil futures eased 0.13 percent to trade at $46.94 a barrel as of 06:55 GMT.

Crude oil futures settled in red territory on Wednesday, following official inventory data from the US Energy Information Administration. The report showed that crude stockpiles fell by 1.66 million barrels in the week ended June 9, falling short from an expected drop of 2.7m barrels.

Investors are increasingly worried that the OPEC-led output cuts won’t be able to counteract the ongoing crude overhang, which seems to be deepening every week.

According to the EIA report, gasoline supplies increased by 2 million barrels compared to a forecasted reduction of 457,000 barrels, while distillate products sank by 328,000 barrels, against an expected rise of 686,000 barrels.

The increase of gasoline stockpiles took market players by surprise, as they were waiting for the US summer driving season to reduce inventories.

The US dollar index rose on the back of a Fed interest rate hike, which weighs on crude prices as they become more expensive for investors holding foreign currency.

Ahead this week, oilfield service provider Baker Hughes will release its weekly oil rig count on Friday at 17:00 GMT.